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Keep an Eye on Norges Bank, SNB and EU/NATO/G7 Meetings

Market movers today

We expect Norges Bank to deliver a 25bp rate hike to 0.75% today. This is in line with both the consensus and market pricing. The question is which signals will be given about rates going forward, illustrated by the rate path in the new Monetary Policy Report. We think Norges Bank will signal a continued gradual normalisation of monetary policy, with three more rate hikes this year and two hikes next year.

The Swiss National Bank (SNB) is set to leave monetary policy unchanged at today’s meeting. Meanwhile, we expect a hawkish shift given strong CPI prints over the past months. Ultimately, we expect SNB to shadow policy moves from the ECB.

EU leaders will meet for a summit on Thursday and Friday. US President Biden will join the talks today for a discussion on support for Ukraine on strengthening the transatlantic response to Russia’s aggression. European governments will also discuss security and defence, phasing out dependency on Russian energy imports and economic issues.

Also flash PMIs from euro area, US and UK are due out today. These are among the first indicators that we receive since the war started. In euro area, we expect a notable dip, especially in manufacturing activity, given the renewed disruptions the Ukraine war has created for supply chains. Also, for the service sector, it will be interesting to see whether consumers have been spooked by higher inflation pressures.

Two ECB speakers, Elderson and Schnabel, as well as several Fed speakers, are also on the wires. Particularly comments from Fed will be of great interest as recent comments by FOMC members have highlighted front-loading rate hikes. No FOMC member is ruling out 50bp rate hikes at this point

The 60 second overview

Russian gas in RUB: Yesterday, it was announced that Russian President Vladimir Putin demands gas payments in RUB from countries on the Russian “unfriendly list”, i.e. Western countries. USD/RUB declined and European gas prices rose on the announcement. This makes gas purchases more complicated for Europe, as it introduces a FX risk for European utilities and RUB is difficult to come by due to sanctions etc. (although not all Russian banks are covered by sanctions). Near-term, it makes it more difficult for the West to “de-swift” the remaining Russian banks but also increases the incentive to divest from Russian gas. From a Russian perspective, it adds support to RUB in a situation where the Russian central bank cannot make FX interventions because of Western sanctions.

EU: EU leaders are expected to agree on buying gas jointly going forward, although they are unlikely to go as far as banning energy imports from Russia. Also EU and the US are likely to strike a deal so that the EU is going to buy more LNG.

Oil: Big draw on US strategic oil reserves last week of more than 4mb – the largest weekly draw since the oil shock in 2011 amid Arab spring and probably what helped push Brent briefly below USD100/bbl last week. Still a lot of reserves left. Brent oil is now above USD120/barrel.

Equities: Equities reverted lower on Wednesday in a fairly uneventful session. In the absence of market movers, the war took a more predominate role: The “war winners” materials and energy outperformed while banks and tech were some of the weaker groups. Despite the weaker sentiment, VIX barely picked up, which suggests that the weaker market was a reflection of the strong performance the last weeks more than anything else. S&P500 -1.2%, Nasdaq -1.3%, Russell 2000 -1.7% and Dow -1.3%. Asian markets are sneaking around the zero line this morning and US futures are slightly positive again.

FI: Yesterday, global bond yields declined after having risen significantly on the back of the hawkish comments from Fed Chairman Powell. 10Y Treasuries fell 10bp to 2.3%, while Bunds fell 5bp. The curves flattened modestly from the long end. Spreads such as BTPS-Bund spread was stable, while the Bund ASW-spread continued to grind tighter at a very modest pace.

FX: NOK has benefitted strongly from the surge over the last days in both oil and natural gas prices. Today’s key event for NOK is the Norges Bank meeting. The Swiss National Bank (SNB) is set to leave the monetary policy rate unchanged.

Credit: After a strong week, credit markets took a breather yesterday. iTraxx Xover widened 9.7bp and Main 1.8bp. Cash bonds were broadly flat, with HY bonds 1bp wider and IG unchanged.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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